social security and millenials

Millennials and Social Security – What You Need to Know

For the past 83 years, Social Security has provided people in our country with a retirement safety net. Social Security for millennials is an entirely different story, however, and one we all should be paying attention to.

While the program isn’t going away anytime soon, it’s no longer the financial backstop it once was. And it’s going to get even worse in the next few decades. Most 80’s and 90’s kids have no idea what’s in store for us come retirement age.

Let’s take a closer look at Social Security in today’s post. How can you prepare to live comfortably in retirement regardless of how the government helps out?

Social Security Through the Yearssocial security for millennials

Set up in 1935, social security was a component of the sweeping changes FDR rolled out as a part of his “New Deal” program. Still in the midst of the Great Depression, Americans needed a boost. Regular payments began for retirees in 1940. Since then, Social Security has been a core component of life after work for retirees everywhere.

Prior to 1972, the only deciding factor on a senior’s monthly payment was Congress. Eventually, a COLA system (cost of living adjustment) was put into place. The law ensured monthly payouts kept pace with rising economic inflation. Disability payments were added as well, widening the net of Americans who could collect Social Security.

The average age of “full retirement” has changed several times. Millennials could see an average age of 70 years or more to claim “full benefits”. The baby boomers have had it easier, seeing full benefits by age 66.

Future of Social Security: 2034 = Trouble

Today there are around 61 million Americans taking in Social Security payments. It’s tough for me to understate just how important these benefits are for many who receive them. Maybe this next stat will help.

Washington think-tank CBPP (Center on Budget and Policy Priorities) estimates the following: eliminating Social Security payments today would result in the poverty rate of elderly US citizens rising from 8.8% to a whopping 40.50%.

This shows just how reliant older folks in the country are nowadays on regular government payments. I can guarantee social security for millennials will not be the same safety cushion.

The big year for us to focus on with social security is 2034. It’s coming up fast and will signal a major change for retirees and millennials of the future. By 2034, the entire reserve of social security cash will be gone. This means change is on the horizon and inevitable for our generation.

While this may seem frightening, don’t think it will wipe out Social Security completely. The majority of payments come from the payroll taxes the government takes out of your paycheck. Everyone hates taxes, but it’s the governments cut that keeps the program afloat today. An exhaustion of the trust will result in payments being cut back up to 21%.

All of this is bad news for those who plan to rely on Social Security more than they should. Luckily for us, Home At 30 puts you ahead of the curve when we talk retirement and financial lifestyle!

How You Can Protect Yourself

The fact is, millennials can’t rely on government payments from Social Security as past generations have. What can we do to prepare? Keep the following tips in mind:

Begin Saving on Your Own – Today!A bar chart showing that a dollar will grow much more when it's invested for a long time.

If you’ve been browsing the site for any length of time, you know the importance of your own savings already! A past article details how you can save double your income by age 35. The way to do this is through equity investment vehicles like ETF’s and index funds. Put your money to work for you; don’t let it sit stagnant in the bank.

Remember: Investing $1 at age 20 is worth $5.84 when you hit 65. That same amount at age 40 will be worth $2.67, if we assume a 4% annual return.

Don’t wait another day to start saving. There are plenty of options to get you started.

Plan For a Retirement Assuming ZERO Social Security

The best way to avoid relying on Social Security as a safety net is to forget about it altogether. As far as I’m concerned, those government payments are pure gravy. The 401k, investment portfolio, and other accumulated assets are the real retirement plan. We really can’t assume anything is a given for the millennial generation.

If you can devise a plan to be sufficient in retirement without factoring in Social Security, you’ll be in better shape then 90% of the other people our age. Understand that while Social Security it not going away in the future, we can no longer rely on it the way Americans have for decades.

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All opinions expressed on this blog are solely those of Home at 30 and are in no way affiliated with any other organization or institution. The purpose of this blog is to give general education and information about investing, wealth, careers, and college; It is not intended to be professional advice.

Author: Joe Savoia

Joe is a 2014 graduate of Northeastern University and currently works in a field sales role for technology company Acquia. He has worked internationally as one of Acquia’s earliest Australia-based employees and helped in the early stages to develop that region. Today Joe is based out of Boston and lives in Somerville, MA. Joe’s primary interests vary widely, including everything from robotics/AI to finance, blockchain, and the rapidly evolving world of tech we live in.

Millennials and Social Security – What You Need to Know was last modified: August 14th, 2018 by Joe Savoia

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